WASHINGTON (AP) — So just what is this "fiscal cliff" that has the financial markets rattled and economists and policymakers alike in a tizzy over the potential for sending the economy into another tailspin?
It's a one-two punch of expiring Bush-era tax cuts and major across-the-board spending cuts to the Pentagon and domestic programs that could total $800 billion next year, based on Congressional Budget Office estimates.
The cliff is the punishment for previous failures of a bitterly-divided Congress and White House to deal with the government's spiraling debt or overhaul its unwieldy tax code.
The largest component of the cliff comes with the expiration of tax cuts enacted in 2001 and 2003 and extended two years ago in the wake of President Barack Obama's drubbing in the 2010 midterm elections.
It also includes sharp spending cuts imposed as a consequence of the failure of last year's deficit-reduction supercommittee" to reach agreement. There are other elements, chiefly a 2 percentage point cut in payroll taxes orchestrated by Obama and unemployment benefits for the long-term jobless that would disappear.
Specifically, the fiscal cliff includes:
—The expiration of Bush-era tax cuts on income, investments, married couples and families with children and inheritances.
—A $55 billion, 9 percent cut in defense spending next year and another $55 billion in cuts to domestic programs, including a 2 percent cut to Medicare providers.
—The expiration of unemployment benefits for the long-term jobless and a sharp cut in reimbursements for doctors participating in Medicare.
—The expiration of Obama's temporary 2 percentage point cut in payroll taxes.
—The imposition of the alternative minimum tax on some 26 million households, which would raise their taxes by an average of $3,700.
—A variety of smaller taxes cuts for both businesses and individuals collectively known as tax "extenders" in Washington-speak. They include a tax credit for research and development and a deduction for sales taxes in states that don't have an income tax.